Experts Speak on the Ramifications of Kerala’s Imposition of a New Tax

The gaming industry in Kerala, India, is facing significant changes following the recent decision to raise the state’s Goods and Services Tax (GST) on gambling from 18% to 28%. Legal experts, Tanisha Khanna and Dr. Aruna Sharma, shed light on the implications of this new tax and what it means for the gaming market in Kerala.

The decision to implement the new 28% GST in Kerala is in line with amendments to the Central Goods and Services Tax Act 2017 and the Central Goods and Services Tax (Third Amendment) Rules 2023, which took place in August and September 2023. This move significantly impacts casinos, horse racing, and online gaming, as they would all fall under the purview of the increased GST.

Tanisha Khanna, co-head of the gaming practice at Nishith Desai Associates, believes that the GST should only apply to the platform fee, rather than the entire amount paid or deposited with an online gambling company. However, India’s Central Government has communicated that the 28% rate will be reviewed after six months, putting the process of enacting the GST in full swing.

While the high GST rate may discourage smaller operators and gaming startups, it is not expected to significantly impact India’s thriving gambling market, according to Khanna. But the implementation process and retrospective nature of the GST rate have raised significant legal challenges. The GST department has issued notices claiming that the tax is to be paid from as early as 2017, leading to challenges and disputes in the Indian courts.

The lack of recognition of games of skill in Kerala has further complicated the regulatory framework for the gaming industry. Dr. Aruna Sharma, a retired secretary of the government of India, notes that Kerala has not recognized court directions on games of skill and has overlooked the central government’s directions on jurisdiction. This has created uncertainty and potential jeopardy for the market.

Looking ahead, the industry is closely watching how the IT Rules will be implemented and regulated by the IT Ministry, as well as important litigations that will determine the constitutional validity of banning games of skill. India’s gaming market holds significant potential for growth, but legislative changes and legal challenges will undoubtedly shape its future trajectory. The Indian gaming industry is poised to emerge as a hub for developers and continues to attract increasing usage of online games despite the regulatory hurdles it currently faces.

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